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A Cruel Blow to American Families

The Internal Revenue Service has issued a hugely disappointing ruling on how to calculate the affordability of health insurance offered by employers. Its needlessly strict interpretation of the Affordable Care Act could leave millions of Americans with modest incomes unable to afford family coverage under their employers’ health insurance but ineligible for subsidies to buy coverage elsewhere.

The problem arises from murky language in the law. It says a worker cannot get taxpayer-subsidized coverage on the new health insurance exchanges, starting in 2014, unless the cost of employer-based health coverage for that worker exceeds 9.5 percent of the worker’s household income.

Both the I.R.S. and the Congressional Joint Committee on Taxation have interpreted the law to consider only the cost of covering the individual employee in calculating the 9.5 percent, not the much higher cost for a family plan.

Although some analysts had offered persuasive legal and social arguments for adopting a more expansive and generous interpretation of what the law requires, the strict interpretation prevailed in a final rule issued by the I.R.S. last week.

There is no doubt that this pinched approach will put a significant number of workers and their dependents in a bind. A Kaiser Family Foundation survey found that in 2012, employees’ annual share of insurance premiums averaged $951 for individual coverage and $4,316 for family coverage. Under the I.R.S. rule, such costs would be considered affordable for an employee with a household income of $35,000 a year — making the employee’s spouse and children ineligible for a public subsidy on a health exchange, even though that family would have to spend 12 percent of its income for the employer’s family plan.

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Estimates made in 2011 by respected research organizations suggested that some 2 million to 3.9 million non-working spouses and dependents would be harmed by the strict ruling. Looking only at children who were uninsured but supposed to gain coverage under health care reform, the Government Accountability Office estimated last June that 460,000 might remain uninsured because of the affordability definition, and that 1.9 million might stay uninsured if an existing children’s health insurance program is phased out as currently planned. This outcome is exactly the opposite of what health care reform is supposed to achieve.

It is hard to see what might be done to reverse this deplorable result. The ideal solution would be for Congress to clarify that the 9.5 percent calculation is based on a family plan, and that dependents can get subsidies on the exchanges if there is no affordable coverage at work. But House Republicans, who are bent on obstructing the health reform law, would never agree to helpful changes, especially one that would increase federal spending.

This problem increases the need to retain the children’s health insurance program, which is financed only through 2015. And it will be crucial to assess the impact that this misguided provision has on coverage, access to care, and the financial burdens on families of modest means.

A version of this editorial appears in print on February 3, 2013, on Page SR10 of the New York edition with the headline: A Cruel Blow to American Families. Today's Paper|Subscribe